UK - Research from the Pensions Policy Institute (PPI) has argued that people making average contributions to an occupational pension scheme may have to work until 72 to have a two-thirds of salary retirement income.
Based on somebody with median earnings, which is currently £20,000, and an assumption that the average contribution of 11% for defined contributions schemes is put into a pension fund throughout the working life, lower future investment returns than in the previous 40 years would mean that they would have to work longer.
Pensions Policy Institute director Alison O’Connell said: “The research shows that people in their 20’s and 30’s today, not only have to think about starting their pension early and saving a reasonable amount of salary, but they also need to think about saving that much for longer. This means for longer than their parents have done.”
Towers Perrin agreed that people may have to work longer to get a two-thirds retirement income because of lower future investment returns. The pensions consultants said: “We are approaching an investment era that isn’t going to look like the last 10 or 20 years. People have got used to fairly exceptional circumstances and things may be returning to a depressed or perhaps more normal environment.”
William M Mercer senior consultant Deborah Cooper predicted that State retirement age may have to be increased to cover this shortfall.
She said: “In all likelihood the State pension age might increase. A lot of people are pressing for the State to increase the pension age to 70 and maybe separate out the age at which people get the state pension and the age at which people stop work. This will mean people will have to think more flexibly about the way they prepare for retirement.”
The research was commissioned by the BBC and calculations were carried out by William M. Mercer.
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